Guest Post: The merchant model is helping agencies deliver better customer experiences

Jason Hancock, director of strategy of WEX International, says by using fast, convenient and sector payments processes retailers are positioning themselves with consumers as the trusted brands in travel as the market recovers from COVID-19

One of the highest impact pillars of disruption in the travel industry now is the expectation from travellers that their travel booking experience is going to be as easy, flexible, and as safe as buying from the leading retail websites. 

Accelerated by the global pandemic, it seems the ‘Amazon effect’ is driving change in travel, just as it has upended the entire retail industry over the past decade.

As a result, many travel agencies have had to move toward a retailing business approach to align with these traveller expectations. 

And since the merchant model is a better way to manage payments and enable the high-touch experience sought by travellers, many of the world’s largest travel agencies are putting a greater focus on this area. 

Even better, the merchant model can deliver a win-win-win situation for all parties, including suppliers, travellers, and the agencies themselves.

Peace of mind for travellers and suppliers amid travel uncertainty

The merchant model provides security for travellers and suppliers amid travel uncertainty. 

In this model, the travel agency collects the inbound payment from the traveller and makes separate payments to each travel supplier as needed. 

This makes the travel agency the merchant of record for the payment from the traveller. The travel agency can choose to accept any locally used form of payment in any currency from the client, thus avoiding their reliance on usually limited forms of payment accepted by the supplier. 

The alternative to the merchant model is the agency model, the traditional approach where the travel agency may collect the payment details (such as credit card numbers) from the traveller, but the travel agency doesn’t process any transactions. 

Recovering a billion dollars in chargebacks and refunds

When travel agencies adopt a merchant model, they need a robust payment platform that can ensure secure, rapid transactions across currencies and a wide set of suppliers. 

Travel agencies already take care of all aspects of the booking journey across multiple suppliers including upgrades, changes in hotel arrival/departure dates, ticket changes, and more. 

However, by accepting responsibility for payments in the merchant model, the travel agency also takes responsibility for managing fraud and customer refunds. This has become a major issue and exponentially more common occurrence during the pandemic. 

Some good news: Protection at scale has been proven. In 2020, during the height of the pandemic, WEX recovered more than $1 billion for its travel industry customers through effective chargeback and refund processing.

This trend to improve the traveller experience intersects neatly with another big industry shift in supplier distribution models. The fallout from COVID-19 has been a sharp reminder for travel suppliers of the growing importance of indirect distribution. 

Suppliers may be getting more benefit from the merchant model than they realise

Suppliers benefit from the retailing approach of their travel agency partners because they can meet the needs of a broader consumer base without having to manage the complexities that come with it, such as the investment and costs associated with building brand awareness and offering local services. 

Especially for airline and hotel suppliers who want to attract bookings from international travellers, the local brand and reach of the travel agency is a powerful addition to their distribution strategy.

Travel agencies using the merchant model take on risks from both the traveller as well as from the travel supplier, and that can bring additional cost and complexity that doesn’t exist under the agent model. 

This also means that travel agencies that adopt the merchant model need to ensure their business is complemented by a robust B2B payments strategy.

Industry leaders are growing with the merchant model

The biggest success stories in travel distribution today involve travel agencies who operate the merchant model and pay travel suppliers with virtual cards. 

Travellers in these cases have been protected from the financial impacts and have experienced less friction in managing their travel changes.

Travel agencies and travel suppliers have benefited from guaranteed payments and efficient payments processing.

Travellers are looking for flexibility, peace of mind, security, and protection. Travel agencies are positioning themselves as trusted brands by, among other things, delivering better customer experiences. 

Travel suppliers like airlines and hotels desperately want to fill spare capacity. And all parties are looking for convenient, fast, and secure payments; while agencies and suppliers are also looking to streamline their payments process.

Based on our research and discussion with customers, we expect the adoption of the merchant model to continue to grow in Europe and in North America.

Read more about the rise in adoption and value of the merchant model around the globe is explained in a new whitepaper from WEX, Travel Retailing: The shift to the merchant model that is redefining B2B payments and distribution strategies.